Academic

I arrived to New Orleans late Thursday night and missed some good-looking AALS panels including a Hot Topics Panel on ?The Constitution and the Economy: Accountability and Autonomy in a Time of Financial Market and Regulatory Transformations.?

I?ll jot a few reactions based on the panels I was able to attend. On Thursday morning, at the Financial Institutions/Consumer Financial Services Breakfast, Jeff Sovern (St. John?s) first presented his research on how the Truth in Lending Act failed in the ?subprime crisis.? Jeff argued that disclosure to mortgage borrowers required under the Act often produced confusing, unhelpful, and at times misleading information to borrowers. Moreover, his preliminary empirical research suggests mortgage borrowers spent scant time, if any, actually reviewing disclosure. Pat McCoy (Connecticut) then sketched out some of the shortcomings of bank regulators during the crisis, particularly the O.C.C.

The failures of current bank regulators and conflicts between consumer protection and other regulatory objectives have led both Jeff and Pat to support the idea of an independent Federal Consumer Financial Protection Agency.

Their presentations provoked a lively discussion (particularly for 7 am) that left me wondering how we can make progress towards a satisfying theory of the optimal number of federal financial regulators. I?ve studiously avoided writing about this question, because it baffles me. There are arguments for a single regulator or a clear division between a handful of regulators ? such as centralizing decision-making and accountability. There are arguments for overlapping regulators ? such having some redundancy, checks and balances, and regulatory competition. But I?ve struggled to hack through the bramblebush of arguments.

This leads nicely to Dan Schwarcz?s paper that I commented on at the Financial Institutions section meeting later on Friday morning. Dan takes on several proposals advocating allowing insurance companies to opt out of the current system of regulation in each state in which a policy is sold. In particular, he criticizes the single-license proposal of Butler & Ribstein, which mirrors the federalism of corporate law, and Optional Federal Charter proposals, which mirrors the state/federal charter choice available to banks. All of this is recommended reading (as David has noted earlier).